Should I Offer Above Asking Price?
If you’ve ever been in a bidding war, you might have considered paying above asking price for a house. But when should you consider this a possibility, and how much more should you offer than they ask? Let’s go over some simple tips you should know about this home-buying method to prepare you for success in the current housing market.
4 Tips For Offering Above Asking Price
There is no definitive formula for determining how much to offer for any given house in the current housing market because each circumstance differs. Instead, think about using this advice to get ready before putting in an offer that is above asking price.
1. Research The Housing Market and Budget
You should familiarize yourself with the housing market’s state before looking for a home. After all, we are always riding the housing market roller coaster.
During the research phase, buyers should speak with their real estate agent about the state of the local housing market. Real estate agents can offer further details that could be difficult to locate on your own. One example is real estate comps, which provide a brief but analytical look at comparable homes in the neighborhood and how much they sold for.
Throughout a bidding war, buyers should always keep their budget in mind. Overbidding could put you in a less-than-ideal financial situation. Once you make an offer, you must follow through if the offer is approved. It is crucial to understand your budget’s boundaries because of this.
“You learn from your experiences and get smarter as you go. That might mean throwing another $10,000 into your offer price because when you’re talking about a 30-year mortgage, that comes out to $28 a month,” North Carolina Realtor Melanie Jones mentions during episode 8 of Design Time: From the Floor Up video podcast. “I’m not saying $10,000 isn’t a lot of money, but it’s not life-changing when it’s spread over 30 years.”
Remember that various variables, including interest rates, mortgage loans, and other aspects of buying a property, affect your actual monthly payment amount.
2. Get A Mortgage Pre-Approval
- What loans you might be eligible for
- The sum you are permitted to borrow
- Your potential interest rates
How does this matter? Preapproval demonstrates to the seller your seriousness about buying a property and helps the buyer determine what they can afford to buy. Some sellers may even require a letter to allow prospective purchasers to view the home. A house should already be in mind before moving on to the approval process with your lender because most preapproval letters have expiration dates.
3. Consider Paying All Cash
Offering above asking price with an all-cash offer may be one of the best options for buyers who don’t require a mortgage to buy a property. It can also assist the buyer in avoiding making an offer that is more than the asking price. Sellers like all-cash offers because they reduce the chance that the transaction will fail and can close more quickly because they can avoid the underwriting process.
4. Make Your Offer Stand Out
When in doubt, adding extra seller benefits that will make your above asking price offer stand out from the competitors is one of the best strategies to win a bidding war. A higher good faith deposit, for instance, can give you the upper hand by demonstrating to the seller your commitment to the deal.
Another tactic some buyers employ in a bidding war is to waive contingencies. Still, it’s important to remember that not all contingencies can or should be waived. This is because most contingencies exist to safeguard the buyer. For instance, the home inspection contingency allows the buyer to walk out of the deal without losing their earnest money deposit or haggling with the seller about who will foot the bill for repairs if significant problems in the home’s condition are discovered. For obvious reasons, it is not a good idea to waive this contingency.
Other contingencies, such as the appraisal contingency, are unnecessary for an offer letter. Waiving this contingency may make your above asking price offer stand out in the bidding war if you’ve found your dream house and are willing to take the chance of a lower appraisal.
Don't Overpay For A Home
In some cases, it may be necessary for you to make an opening offer above asking price or a higher value counteroffer. However, you also want to avoid making a terrible mistake.
Your agent should research the current housing market and recently sold comparable homes to ensure you don’t pay more than a house is worth.
However, a house is only worth what a buyer is willing to pay.
The Takeaway: Carefully Craft Your Offer
Planning your offer carefully and deliberately in advance can be the difference between winning and losing a bidding war, especially in a seller’s market. You can distinguish yourself from other possible buyers by doing housing market research, getting preapproved, removing contingencies, and making an offer that is above asking price.
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